Does Capitalism Work for the Middle Class?

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As many of you know, I teach personal finance primarily to Main Street. If you make $40-150K combined household income you’re in my sweet spot. Unfortunately, based on recent economic data, I don’t think you’re in the sweet spot of capitalism.

Take the following train of thought:

  • 70% of our economic growth (also known as GDP growth) is driven by consumer spending (that’s you and I buying stuff).
  • On average, we all have less money given job loss and stagnant wages.
  • At the same time, our average household debt has increased over the past 40 years (which has supported more spending)
  • So, to continue to drive economic growth, the masses (also known as middle class) should spend first, then pay off their debt. In fact, if you don’t have money to spend, borrow it so you can help drive GDP growth.
  • When the economy grows, you get some growth in the form of more jobs and increase in retirement balances but people with capital (and investments) get a disproportionate amount of the benefit.

I’ve probably oversimplified the scenario but, from this lens, it feels like the middle class is subsidizing the wealthy. Moreover, government and private sector actions start to make sense. To drive economic growth (GDP growth), we receive stimulus checks we should spend (remember the $600 in the mail) and get credit so we can borrow and spend. It’s in the country’s best interest for middle class families to live beyond their means and do it consistently year after year. If you want to support your country, sign up for the military or spend until you’re cut off. OK, the last sentence was a bit dramatic but you get the point.

Am I missing something? Do you think our economic growth is driven by middle class consumer debt?  Does capitalism work for the middle class? Any solutions?

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